Sage of Omaha Speaks
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
We don’t agree with everything in this year’s version of the annual letter that the chairman of Berkshire Hathaway, Warren Buffett, sends to shareholders. But as the second richest man in America, Mr. Buffett has earned the right to be listened to carefully. As we pored over the annual note from the investor known as the Sage of Omaha, one passage caught our eye.
It was a section commenting on the fetish, as part of the corporate governance hysteria sweeping the nation, for “independent” directors. Mr. Buffett made the point that the common criteria for independent directors, advanced by troublemaking institutional shareholders like the big public pension funds, don’t necessarily guarantee that the directors are representing the shareholders’ interests.
He writes: “In our view, based on our considerable boardroom experience, the least independent directors are likely to be those who receive an important fraction of their annual income from the fees they receive for board service (and who hope as well to be recommended for election to other boards and thereby to boost their income further). Yet these are the very board members most often classed as ‘independent.'”
The Sage of Omaha suggests an alternate measure of corporate directors, quoting Christian scripture, the book of Matthew, to make his point, “For where your treasure is, there will your heart be also.” In other words, those with big stakes of their own in the company’s stock are likely to have their interests aligned with the shareholders. The so-called independent directors who rely on hefty directors’ fees for their income are likely to be less sensitive to the shareholders’ interests, and may even be less genuinely independent of the company’s management.
It’s a point worth remembering amid the current fashion for supposedly independent directors, one that is affecting our city everywhere, from the governance of the New York Stock Exchange to its large member companies. Often the best representative of the shareholders in a company is someone who actually is a big shareholder in the company.
